Question: Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 10.1% and 15.6%, respectively. The

Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 10.1% and 15.6%, respectively. The beta of A is .6, while that of B is 1.8. The T-bill rate is currently 6%, while the expected rate of return of the S&P 500 index is 12%. The standard deviation of portfolio A is 26% annually, while that of B is 47%, and that of the index is 36%.

a. If you currently hold a market index portfolio, what would be the alpha for Portfolios A and B? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 1 decimal place.)

b-1. If instead you could invest only in bills and one of these portfolios, calculate the sharpe measure for Portfolios A and B. (Round your answers to 2 decimal places.)

b-2. Which portfolio would you choose?

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